Town Meeting Remarks
by Robert A. Brown | January 22, 2009
Thank you for coming this morning. This is a two-campus Town Meeting; we here in the GSU are connected by video link with our colleagues on the Medical Campus in the Hiebert Lounge.
Our goal this morning is to follow up on the email that was sent to all faculty and staff last Monday about the impact of the recession on the University and the next steps in our process for finalizing the budget for the next fiscal year. The format for this morning is as follows: I will begin with some remarks that elaborate on my email to you and then we will open the floor to questions from the GSU and the Medical Campus.
I am joined on the stage by three of my senior colleagues who will be available to address questions:
- David Campbell, University Provost
- Karen Antman, Provost of the Medical Campus and Dean of the School of Medicine
- Joe Mercurio, Executive Vice President
Let me begin.
Back in September, we recognized that the turbulence affecting financial institutions and the decline of world-wide capital markets were potentially the early signs of a deep and protracted recession. We also were concerned about the impact of such an economic environment on many aspects of our operations, but none more so than the ability of our students and their families to afford a Boston University education. Based on these concerns, we decided then to freeze all non-essential staff hiring and defer new capital projects to preserve resources. Many of our concerns have, unfortunately, materialized and, as you have read and heard, have been echoed by other private universities as large budget reductions and the actions needed to implement them have been announced by these institutions. Both our state and local governments are feeling the mounting financial impacts of the recession.
Since September, we have worked to position Boston University for the financial challenges that we are beginning to face and that may worsen in the coming year. The Office of Financial Assistance, working in collaboration with the Dean of Students Office, has reached out to those students who have seen their financial circumstances change to make available additional financial aid. Since September, we have processed over 630 requests for new or additional financial aid, an almost 100 percent increase over the number of applications during the same period last year. We are working to help these students continue to afford a Boston University education and keep them enrolled here. We believe that this is just the beginning of a difficult period, as much more unemployment is expected that will surely impact our students and their families.
As is true for all our peers, our endowment is down as a result of the falling capital markets. As of the end of November it stood at approximately $900 million, down from about $1.1 billion as of June 30 last year, a drop of 24 percent. We are building our budget for next year on a necessarily conservative basis, assuming that there will be further declines in the endowment during this fiscal year. These numbers sound very large, and they are. However, the performance of our endowment actually is better than average, compared to benchmarks such as the S&P 500 and more customized assessments of market performance.
Although the decrease in the endowment is certainly significant to us, it is not a major driver of our budget, unlike the case for many of our peer institutions that have been highlighted in the press. In this current fiscal year, income from the endowment contributes less that 3 percent of our overall operating revenues. Alternatively, because tuition, fees, and room and board from our students represent more than 60 percent of our revenue, the impact of the recession on them is our biggest concern, and we have budgeted a substantial increase in our financial aid reserve to fund the potential for additional need caused by the economic downturn.
We have assembled the Fiscal Year 2010 budget, that's the budget that starts next July, around these projections and with the following assumptions, which also are listed in my email:
- We are providing modest salary increases for the exempt administrative staff effective January 1 of this year, with the largest increases going to employees with annual salaries under $60,000 per year and no increases for employees who earn over $150,000; the salaries of the senior administration (vice presidents, deans and above) are frozen until July 1, 2010.
- Modest salary increases have been budgeted for faculty and staff in the next fiscal year. We believe the below-market position for faculty salaries justifies our continuing effort to address this issue. Also, administrative and support staff represent a vital resource for the University, and we will do our very best to support and retain our employees through modest salary increases.
- Although these are our goals for increases in compensation, salary freezes going forward remain an option, if economic conditions worsen. This point highlights the reality that we are living in unprecedented economic times and we must remain as flexible as possible with respect to the allocation of resources.
- In keeping with this strategy, we are continuing the hold on all major capital expenditures that we began in October to conserve cash for our core operations and to avoid increased debt. In the months ahead we will reassess specific projects on an ongoing basis, as the economic climate evolves, and decide which projects, if any, are so critical that they must be launched.
- Administrative expenses will be frozen except for adjustments for inflation and cost increases for critical services and supplies, as well as for reductions that I will describe in a moment.
- We expect that the proportion of the budget associated with outstanding debt and other financing expenses for the University will rise in the next fiscal year because of the impact of the recession and the upheaval in the financial markets.
- We are continuing faculty hiring as our funding allows, so as to continue to staff our academic programs at the level consistent with the excellence we strive for.
- Finally, we will allocate our scarce discretionary resources to funding initiatives that are important to the future of the University, as described in the Strategic Plan.
When the projected budget for next year is assembled around this set of assumptions, a $10 million gap remains. This gap involves the budgets of academic units on the Charles River Campus and the general University administrative units. The Medical Campus and their administrative services have about a $1 million gap. In our budgeting methodology these schools and their services are allocated separately. The Medical Campus will be participating in the processes I describe to help drive efficiencies in their services with the goal of reducing costs.
The actions we are taking are aimed at balancing the University budget while being guided by a simple set of principles:
- We must maintain the quality of a Boston University education through the excellence of our faculty and the classroom environment and the breadth of our offerings. This is essential, because the quality of our programs is the foundation of Boston University and enables us to attract the very best students and faculty and to garner support for their research and scholarship. Nothing is more important to the well-being of this University than the quality of our programs.
- We need to deliver sustainable efficiencies in our operations and permanent cost reductions. What I mean by this statement is that the changes we make and the reductions in expenses that we take should not be seen as temporary hardships that can be undone quickly. Otherwise we will not have institutionalized the changes and we would not be well positioned to weather a long recession.
- We must minimize the impact of these reductions on the quality of our services to our faculty and students.
- We must be able to continue our momentum for improving the University. Important initiatives, such as continuing to innovate in undergraduate education, improving student educational services, and hiring and retaining the very best faculty are key to our future and we cannot let these important goals be derailed by the economic downturn.
Our guide for managing the University through this period will be our Strategic Plan and the shared commitments and the strategic goals described there. We will maintain the momentum of the University toward these goals, even if achieving them may take a bit longer than we had hoped.
Our expense reduction efforts are focused initially on two specific objectives:
- First, we should reduce subsidies for activities and services that are not essential to our core missions of education and research, and to the commitments and goals laid out in our Strategic Plan. Here we are examining subsidies to external organizations, to academic centers and institutes within BU, and to auxiliary units that were designed to be financially self-funding, but for which the business models have not delivered the required results, especially in the economic climate we face.
- Second, we will examine and potentially reorganize key administrative services across both academic and administrative units to increase efficiency and remove redundancy.
We will focus on seven initial service areas for this effort. These are:
- Desktop Computer Services and Information Technology
- Financial and Administrative Services
- Research Administration
- Alumni Relations
- PC Clusters
- Event Coordination
Most of these services have traditionally been organized unit-by-unit. We recognize that this existing pattern allows for a level of convenience and local control, but it also can lead to considerable redundancies and inefficiencies. We believe there are significant synergies and operational efficiencies that can be created by reorganizing these functions, as least partially, across administrative and academic units. In some cases these changes will lead to reorganization of functions into clustered or centralized services.
For each area we have established working groups led by a senior administrator and including representatives from our schools and colleges and administrative units. Their task is to report back to the senior leadership next month with their recommendations for the organizational changes that will increase efficiency and reduce expenditures.
As our plans for reorganizing services develop, there is no doubt that the changes will result in some positions being eliminated. Let me emphasize that point: some positions will be eliminated in the reorganization. Our freeze on staff hiring that began last October, and which is still in effect, has created a resource of open staff positions that, if at all possible, will be used to manage the reorganization process so that we can minimize the need for layoffs of current employees. Nonetheless, it is likely that some layoffs will be required to meet the objectives of the reorganizations.
Our goal is to close the budget gap through the combination of reduced subsidies and service reorganization. If successful, we will be able to avoid budget reductions for academic and administrative units beyond the impacts of these two efforts.
The working groups for each area have begun their work. I hope that they will be able to report their recommendations by the middle of February, and that we will finalize our plans by March 1 with the goal of implementing the changes during the remainder of this calendar year.
I would expect that many of you might have ideas or suggestions for improving the efficiency of our operations, or other steps we might take that are outside these two initiatives. If so, you can send them to my office by email, to firstname.lastname@example.org. We will share your ideas with the appropriate working groups or with others within the University.
I have been through the process of making budget reductions before in a university setting, and I know how difficult they are on all involved with the implementation, and how the changes brought about by reorganizations, like the ones we are discussing, caused anxieties throughout the university. This process will be especially difficult for us given the great momentum Boston University has developed over the last couple of years because of the hard work of all of our staff and faculty. You are the foundation of this great University. With your continued support, with the solid financial foundation that we are building on, and with our core principles and our Strategic Plan as guides, Boston University will navigate through the recession and emerge a stronger institution when it's over.
Let me open the floor to questions.